£2bn to ‘save’ Universal Credit blows budget plans

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Government faces a radical re-work of its budget plans to face down a back-bench rebellion over Universal Credit – with the Treasury having to sacrifice tax cuts to find some £2bn to keep the ‘toxic’ reform on course.

The Treasury is already in a bind over the scrapping of the council borrowing cap and its impact on the national debt – details of which almost certainly won’t feature in the budget.

A first test for UC’s survival in its present form is expected on Wednesday (Oct 17) when an Opposition Day debate on UC is due in the Commons.

Also likely at Parliament this week is an attempt to force ministers to admit how many people will lose out under the new system – while transitional support is given to those moved over to the new system, this is removed the moment their circumstances change.

What’s at stake is the roll-out of UC as the scale of its impact intensifies a simmering Tory rebellion against the prospect of around three million households seeing their income cut.

The ‘rebels’ already believe they’ve done enough to force a re-think, some are confident enough to push for a block on the roll-out without that £2bn pointing to precedent that problems with tax credits in 2000 and housing benefit in the 1980s were sorted by spending money.

With UC – and on the basis that benefits cannot go back to what they were – spending means not only allowing the system to become more generous but more investment in its delivery.

Even Iain Duncan Smith – himself toxified as the so-called ‘architect’ of the reform – has said topping funding was the best way of reaching the “just about managing”.

Duncan Smith resigned as work and pensions secretary over cuts to UC.

Analysis indicates almost two in five households in receipt of benefits would lose an average of £52 a week through the roll out – including a million homeowners currently receiving tax credits, 750,000 households on disability benefit and some 600,000 working single parents.

That puts the Treasury on a tightrope with intense pressure to pay for welfare and the NHS and fiscal hawks on the Tory benches ready to swoop on tax rises.

Millions of claimants are due to be moved on to UC next year, with nearly three million facing income cuts that the government had steadfastly denied – until last week.

Working homeowners currently receiving tax credits are especially badly hit.

According to research, a million homeowners currently receiving tax credits will be worse off – losing an average of £43 a week.

Researchers found that 600,000 working single parents receiving the current tax credits system will be worse off, losing £16 a week on average.

About 750,000 households on disability benefits will be worse off. Their average loss is £76 a week.

The self-employed lose out under rules that assume a minimum income from self-employment, usually £1,187 a month.

That leaves 600,000 self-employed worse off.

Families with more than two children suffer as a result of changes to the law that limits state support to two children.

Under the tax credits system, payments are made for more than two children if they were born before 6 April 2017.

As a result, 300,000 families will be worse off, losing an average of £40 a week each.

Of the two million households that could gain compared to the old system, the average is around £26 a week.

Households that do well out of the new system include 900,000 private tenants in work, gaining an average of £14.52 a week.

Those too ill to work or to prepare to work are likely to be better off or receive the same amounts – the average household in that situation will be £7.76 a week better off.

The DWP still sticks to its “listening and responding” line, claiming “significant improvements” have made to the system as a result of sustained criticism – including transitional protections put in place so claimants moving onto UC receive the same or increased level of support and additional protections for 500,000 severely disabled.